Fed Chairman Bernanke spooked investors with his testimony before Congress on Wednesday by indicating that the Fed could begin to withdraw the punch bowl of stimulus as soon as at one of its next monthly FOMC meetings.
What? The Fed might abandon investors? Might remove the 'Bernanke put' and let market forces return to normal? That's not fair! Since the economic recovery and bull market in stocks began in 2009 we've been guaranteed the full force of central bank stimulus to keep them going, with the Fed even rushing in with more stimulus, QE2, Operation Twist, QE3, each of the last three summers when the economy and markets faltered.
General Electric (GE) was once revered as one of the bluest of all blue-chip companies in the world. During its glory days, GE was respected as an industrial conglomerate that manufactured some of the world's best jet engines, locomotives, appliances and even the highly regarded General Electric light bulb. However, as best I can determine, the roots of General Electric's ultimate demise were established in 1930 when the company, responding to the great depression, formed GE Finance in order to help their customers finance GE appliances over time.
The Dow Jones industrial average sits above 15,000, an all-time high. But don't be fooled, this doesn't mean that stocks are expensive. I understand that it seems logical to assume that if the Dow Jones industrial average, what many believe to be the bellwether index of the stock market, is at an all-time high, then it must simultaneously be overvalued. Herein is the danger of relying on headlines and simple statistics.
This article intends to demonstrate that more than one third of the 30 Dow stocks (11) are undervalued, another 6 are fairly valued, another 6 fully valued, but not overly so, and finally, only 7 that could rightfully be classified as overvalued. In other words, the Dow Jones industrial average is rather cheap, even though it sits near an all-time high.
The gloom and doom theorists swarmed out of the woodwork during the 2008 financial meltdown in reaction to government actions taken to prevent the 'great recession' from morphing into the next great depression.
The blame fell on both political parties. The Bush administration began the bailout efforts in March, 2008 and by the time its term ended it had provided $29 billion in loan guarantees to allow JP Morgan Chase to take over collapsing Bear Stearns, the $178 billion 'Average American Bailout' stimulus plan, the $300 billion Homeowners Bailout, the $200 billion bailout of Fannie Mae and Freddie Mac, the $25 billion Automakers Bailout, the $150 billion bailout of AIG, and the $700 billion Banks Bailout (TARP).
This is part two of a series on investing for growth, part one can be found here.
One of my primary objectives for preparing this series is to dispel some of the common myths that many investors hold regarding investing for growth. For example, many believe that growth stocks are, by definition, riskier than dividend paying stocks. Although there is some truth to this, I believe this concept is overblown.
One commonly measured metric for measuring risk is beta. At its core, beta is a measure of volatility which is also referred to as systematic risk. More simply stated, it is a measurement designed to reflect whether or not a given stock is
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